'Horrible Idea to Break Up Banks': Ex-JPM Official
The creation of big banks wasn’t an unnatural act in the 1990s and it makes no sense to break them up now, William Harrison, former Chairman of JPMorgan Chase told CNBC’s "Closing Bell."
“I think it’s a horrible idea to break up the banks,” Harrison said in an interview Wednesday. “There was a reason why all the banks became large — that is scale and efficiency. It wasn’t an unnatural act.”
He continued, “The result of this has a lot of efficiency benefits for clients and customers both in the U.S. and around the world.”
Harrison also said that with the U.S. trying to compete in a globalizing world, having large banks is important. “We have great companies, we have the best banks and our banks have an impact on creating the deepest capital markets in the world,” he said. That has bolstered our economic standing in the world, according to Harrison.
Breaking up the banks would create many smaller banks that could not effectively serve their clients, he said.
Harrison, who helped put JPMorgan and Chase together in 2000 was responding to a call by former Citigroup CEO Sandford Weill in July to separate commercial and investment banks. Weill’s call was an abrupt change for the man largely credited with being the architect of the financial supermarket in the 1990s. (Read More:Wall Street Legend Sandy Weill: Break Up the Big Banks.)
Harrison also said that simply having smaller banks doesn’t eliminate the possibility that something goes wrong. “There’s not a high correlation between complexity and failure,” he said, noting that many of the financial institutions that failed in the financial crisis were monoline companies and not big complex banks.
He also said that financial institutions do not bear sole responsibility for the crisis. “Banks have their share of the blame,” he said, but the role of government agencies, regulators, ratings agencies and borrowers need to be taken into consideration too. (Read More:Ex-TARP Watchdog Unleashes on 'Monster' Banks, Reform Law.)
Being large also served JPMorgan well when it dealt with its massive trading loss earlier in the year. “One of the advantages of size and scale and capital is you can make a mistake and still manage right through it,” Harrison said.